Method for establishing a value for a non-market security

ABSTRACT

Provided is a method and apparatus for establishing a value for a non-marketable security in which an electronic forum is provided for trading the securities and in which the value of the security is established by matches between sell offers and buy offers.

BACKGROUND

(1) Field of Invention

The invention relates to a method for establishing a value of anon-marketable security, such as an employee stock option, wherein thenon-marketable security is traded in an electronic forum.

(2) Description of Related Art

Non-marketable securities are those which cannot be readily bought orsold publicly. Thus, unlike freely tradable shares of stock or bonds,there are no open markets for non-marketable securities and, therefore,no market price established for such securities. The accurate valuationof non-marketable securities such as, for example, employee stockoptions, is important for at least three reasons: (1) individuals whohave a substantial portion of their net worth represented bynon-marketable securities can improve their tax planning andrisk-diversification strategies; (2) firms who utilize employee stockoptions can more accurately report labor-related costs; (3) firms candesign more efficient compensation packages that provide the desiredretention and incentive benefits; and (4) firms can more easily andinexpensively determine the expense factor of their securities benefitsplans, now required of publicly held companies in reports to theSecurities and Exchange Commission by FAS 123R standards. The lack ofmarket value for a non-marketable security may also prevent its holderfrom receiving the market price for the security. For example, the valuean employee receives from exercising an employee stock option is theoption's intrinsic value (i.e., the stock price minus the option'sstrike price) instead of the market price that would equal the sum ofthe option's intrinsic value and its time value (i.e., the valueassociated with the possibility of future stock prices increases).Moreover, since the employee generally cannot hedge the risk of theoption, employees may tend to place a lower value on employee stockoptions and tend to exercise them earlier than would an outsideinvestor.

Valuation models have been developed that attempt to determine themarket value of a stock option. For example, the Black-Scholes model,which was originally designed for valuing exchange-traded options, canbe applied to valuing employee stock options. However, some empiricaldata suggests that the Black-Scholes model can overstate the value ofemployee stock options by more than 50 percent. See, for example, S.Huddart, et al., Employee Stock Option Exercise: An Empirical Analysis,The Journal of Accounting and Economics (1996). Moreover, as pointed outby numerous authors (Huddart, S., “Employee Stock Options”, Journal ofAccounting and Economics, Vol. 18, pages 207-231(1994); Kulatilaka, N.and Marcus, A. J., Valuing Employee Stock Options, Financial AnalystsJournal, pages 46-56 (November-December 1994); Rubinstein, M., On theAccounting Valuation of Employee Stock Options, Journal of Derivatives,(Fall 1995)), employee stock options are quite different fromexchange-traded options, and these differences cause valuations based onthe Black-Scholes model to be overstated.

In an attempt to overcome the limitations of the Black-Scholes model,Huddart, Kulatilaka et al., and Rubinstein, developed binomialtree-based models, which assume that employees make exercise decisionsto maximize the expected utility of terminal wealth. The modelsdeveloped by them are an improvement over the Black-Scholes model inthat they address the effect of risk aversion and wealth effects onemployee stock option value. However, with the exception of theRubinstein model, they do not reflect the effect of other factorsaffecting employee stock option value (e.g., vesting or forfeiture) nordo they address how to calibrate their models to observed measures ofexercise and forfeiture behavior. Although Rubinstein's model doesreflect the effect of vesting and forfeiture, it too fails to considerother factors affecting value and does not provide a means ofcalibrating the model to observed behavior.

In Carpenter, J. N., The Exercise and Valuation of Executive StockOptions, Journal of Financial Economics, Vol. 48, 1998, pages 127-158(1998), Carpenter develops a binomial model in which exercise decisionsare based on the maximization of terminal wealth. The model reflectsvesting and forfeiture and can be calibrated to observed measures ofexercise and forfeiture. The model is calibrated by fitting a curvethrough the early exercise boundary based on a model with annual timesteps, and it is shown that a simple extension of the ordinary Americanoption-pricing model that incorporates random, exogenous exercise andforfeiture behavior can predict exercise behavior as well as a moreelaborate utility maximization model. However, this conclusion may berelated to the particular parameters used in this analysis. A riskaversion parameter of 2.0 is used in the analysis, which is usuallybelieved to be an average level of risk aversion. It has been shownthat, at high levels of risk aversion, ordinary American option-pricingmodels can give incorrect results (Kulatilaka and Marcus (1994)). Thisoccurs because at high levels of risk aversion, employee stock optionvalues can be inversely related to volatility. The value ofexchange-traded American options increase with increases in volatility.

All of these attempts to value employee stock options are from theperspective of cost to the firm as opposed to the value of the employeestock option to the employee. Lambert et al. (1991) were the first tovalue employee stock options from the perspective of the employee stockoption holder (see, Lambert, R. A.; Larcker, D. F.; and Verrecchia, R.E., Portfolio Considerations in Valuing Executive Compensation Journalof Accounting Research, Vol. 29(1), pages 129-149 (Spring 1991)). Acertainty equivalent framework is used to determine the value of aEuropean option to the employee stock option holder, and it shows thatthe employee stock option is worth substantially less to a risk-averseand poorly diversified employee than it costs the firm.

Hall and Murphy present a model to determine the value of employee stockoptions to employees in various applications (see Hall, B. J. andMurphy, K. J., Optimal Exercise Prices for Risk Averse Executives,American Economic Review, (December 2000)(“Hall and Murphy”). A drawbackwith this model is that for certain “deep in the money” employee stockoptions, the value produced by this model can be less than the option'sintrinsic value at the grant date. To cure this deficiency, Hall andMurphy extended the Lambert model to reflect the possibility of earlyexercise. However, their model does not address the other features ofemployee stock options and does not provide a means for calibrating themodel to observed behavior.

To address non-traditional employee stock option features, such asrepriceability (which allows the strike price to be reset if the optionis too far “under water”), performance vestment (which vests only if theunderlying stock price exceeds a prescribed level), indexing (whichallows the strike price to vary according an index), and purchasefeature (which requires the employee to pay a portion of the strikeprice at the grant date and the remainder of the strike price when theoption is exercised), Johnson and Tian provide formulas for valuing mostof the non-traditional types of employee stock options, includingindexed options, performance vested options, repriceable options andpurchased options. (See, Johnson, S. A. and Tian, Y. S., The Value andIncentive Effects of Nontraditional Executive Stock Option Plans,Journal of Financial Economics, Vol. 57, 2000, pages 3-34,(2000))(“Johnson and Tian”). All of their models assume that theemployee stock options are European (i.e., can only be exercised at theoptions' expiration date). Also, their models do not address the otherfeatures of employee stock options, such as vesting and forfeiture, donot address model calibration, and value employee stock options onlyfrom the perspective of the company.

Various other methods have been developed to estimate the value ofemployee stock options. For example, US 2005/0114242 to Gray and US2005/0010518 to Friedman disclose the use of an option value formulathat can be used to determine whether to convert non-transferableemployee stock options into transferable options. US 2004/0267656 toFriedman discloses a method of determining the value of an employeestock option by averaging the price obtained from various theoreticalpricing models with the average traded stock price over a period oftime.

Methods have also been developed to electronically manage employee stockoptions. For example, U.S. Pat. No. 5,671,363 to Cristofich, U.S. Pat.No. 6,173,270 to Cristofich, and U.S. Pat. No. 6,269,346 to Cristofichare directed to systems for managing the purchase price, grant dates,and vesting of employee stock options. Others have developed methods formaximizing the value of employee stock options via hedging, riskallocation, tax minimization, and the like. See, for example, US2002/0194136 to Sullivan (disclosing an employee stock option system forhedging, particularly to minimize taxes); and US 2004/0128221 to Pandher(describing means for evaluating various severance risks to arrive at arisk-neutral model value).

The present invention overcomes these and other problems anddeficiencies associated with valuation methods of the prior art by usingan actual market to estimate the value of a non-marketable security.

SUMMARY OF THE INVENTION

Applicants have discovered an effective method for accurately estimatinga value of a non-marketable security directly from market-driveninformation. More specifically, the present invention is directed to amethod and apparatus wherein offers to sell a non-marketable securityand offers to buy the non-marketable security are posted on a forum, andwherein the value of the security is determined from a match of sell andbuy offers. This method advantageously emulates the dynamics of an openmarket, thereby providing a more accurate estimate of the value of anon-marketable security than is presently available via theoreticalmathematical models.

Thus, according to an aspect of the present invention, there is provideda method for establishing a value for a non-marketable securitycomprising the step of providing an electronic forum for tradingnon-marketable securities wherein the forum is adapted to receive atleast one sell offer and at least one buy offer for the security, tomatch a sell offer with a buy offer, and to establish a value of thesecurity from the match.

According to another aspect of the invention, there is provided a methodfor establishing a value for a non-marketable security, comprising thestep of posting a sell offer or a buy offer for the security onto anelectronic forum, wherein the forum is adapted to receive at least onesell offer and at least one buy offer, to match a sell offer to a buyoffer, and to establish a value of the security from the match.

According to yet another aspect of the invention, there is provided amethod for establishing a value for a non-marketable security,comprising the step of exchanging an asset of a value equivalent to aforum-derived value for the security, wherein the forum-derived value isdetermined by matching a sell offer with a buy offer in an electronicforum for trading non-marketable securities wherein the forum is adaptedto receive at least one sell offer and at least one buy offer for thesecurity, to match a sell offer with a buy offer, and to establish avalue of the security from the match.

According to another aspect of the invention, there is provided anelectronic trading platform for valuing non-marketable securitiescomprising (a) an electronic database of information regardingnon-marketable securities available for sale, offers to sell securities,and offers to buy securities; (b) a system for transferring informationfrom said database to participating vendors and vendees; (c) a systemfor receiving a vendor's offer to sell a security; (d) a system forreceiving a vendee's offer to buy the security; (e) a system formatching the offers; and (f) a system for establishing a value of thesecurity from the match.

BRIEF DESCRIPTION OF THE DRAWINGS

The invention will be more fully understood and further advantages willbecome apparent in view of the following drawings wherein:

FIG. 1 is a flow diagram depicting an exemplary method for estimatingthe value of a non-marketable security in accordance with an embodimentof the present invention.

FIG. 2 shows an embodiment of an electronic trading platform accordingto the present invention.

DETAILED DESCRIPTION OF PREFERRED EMBODIMENTS OF THE INVENTION

The present invention is generally directed to a method and an apparatusfor establishing a value for a non-marketable security via matching asell offer to a buy offer. As used herein, the term security is usedbroadly to include any note, stock, treasury stock, security future,bond, debenture, certificate of interest or participation in anyprofit-sharing agreement or in any oil, gas, or other mineral royalty orlease, any collateral-trust certificate, preorganization certificate orsubscription, share, investment contract, voting-trust certificate,certificate of deposit for a security, any put, call, straddle, option,or privilege on any security, certificate of deposit, or group or indexof securities (including any interest therein or based on the valuethereof), or any put, call, straddle, option, or privilege relating toforeign currency, or in general, any instrument commonly known as a“security”; or any certificate of interest or participation in,temporary or interim certificate for, receipt for, or warrant or rightto subscribe to or purchase, any of the foregoing. “Non-marketablesecurity” extends to all types of securities that cannot be readilybought or sold. Conventionally, non-marketable securities arecharacterized as having an undetermined or theoretical price estimatedfrom, for example, a valuation formula. Examples of non-marketablesecurities include, but are not limited to, employee stock options,restricted share plan awards, performance-based securities benefit planawards, and stock-appreciation rights awards.

The term “value” as used herein means an amount, as of goods, services,or money, considered to be a fair and suitable equivalent for somethingelse.

The term “match” as used herein means to find or produce a counterpartto, and is not limited only to finding two items that correspondexactly. That is, methods of the present invention are preferablyadapted to identify a relationship between at least one sell offer andat least one buy offer wherein the price of buy offer is preferablygreater than or equal to the price of the sell offer. Other criteria forestablishing the market value of a security can also be practiced withthe present invention, including, for example, some value between a selloffer and a relatively lower buy offer or some value between a selloffer and a relatively higher buy offer.

In one embodiment, an electronic forum for non-marketable securities isprovided wherein the forum is adapted to receive at least one sell offerand at least one buy offer for a non-marketable security, to match asell offer with a buy offer, and to establish a value of the securityfrom the match.

Fora of the present invention comprise static or dynamic pricingmechanisms which, in turn, define the organization, information exchangeprocess, and trading procedure of the fora. Types of pricing mechanismsthat may be practiced in accordance with the present invention include,but are not limited to, exchanges and auctions. As used herein, the term“exchange” means a system for trading securities wherein offers to sellsecurities and offers to buy securities are made and matchedsubstantially contemporaneously. As used herein, the term “auction”means a system of trading securities wherein one or more winning bidderpurchases a security for some bid amount. Examples of preferred types ofauctions include, but are not limited to, open-bid, ascending-priceauctions (e.g., English auctions); open-bid, descending-price auctions(e.g., Dutch auctions); sealed first-price auction (blind) auctions;sealed second-price auctions (e.g., Vickrey auctions); and doubleauctions.

For embodiments utilizing an English auction, potential vendees bidopenly against one another, with each accepted bid being higher than theprevious bid. The auction ends when no participant is willing to bidhigher than the highest bid, or when a pre-determined “buy-out” price isreached at which point the highest bidder becomes the buyer at the priceset by the high bid. The vendor may set a reserve price and, if theauction fails to elicit a bid at or above the reserve price the vendormay reject the high bid. A variation of the English auction that may bepracticed with the present invention is the multi-unit English ascendingauction where several identical goods are sold simultaneously to one ormore high bidders.

For embodiments utilizing a Dutch auction, the auction begins with ahigh asking price which is lowered until some participant is willing toaccept the auctioneer's price, or a predetermined minimum price isreached. That participant pays the last announced price. This type ofauction is convenient when it is important to auction goods quickly,since a sale never requires more than one bid.

For embodiments utilizing a sealed first-price auction (also known as asealed high-bid auction or a first-price sealed-bid auction (FPSB)), allbidders submit bids so that no bidder knows the bid of any otherparticipant. Once all of the bids are received, the bids are unsealedand the highest bidder wins the auction at the bid they submitted.

For embodiments utilizing a sealed second-price auction, all bidderssubmit bids so that no bidder knows the bid of any other participant. Inthis regard, the sealed second-price auction is similar to the sealedfirst-price auction. However, in the sealed second-price auction thehighest bidder wins the auction but pays the second highest bid ratherthan their own.

If more than one identical item is to be sold, there are two possiblegeneralizations of the second-price auction. In a uniform-price auction,all of the winning bidders pay the price submitted by the highestnon-winning bidder. Bidders will not typically bid their true value in auniform-price auction with multiple units. In a Vickrey auction, thepricing rule is more complicated, but preserves the property thatbidders will bid their true valuation. It is also possible to auctioneach identical item individually. Once each item has been priced, thewinning bidder is entitled to buy the remaining goods at the same price.Items the winning bidder opts not to purchase are auctioned again. Thissystem creates a tension between the desire to hold back on biddingsince later items will almost certainly be cheaper, and the chance thatby losing the first round of bidding all possibility of purchasing willbe lost.

Bidders in the traditional Dutch auction and sealed first-price auctionwill tend to underbid what they believe the item is truly worth in hopesof getting the item for less, or in order to avoid the winner's curse(i.e., a tendency for the winning bid to exceed the intrinsic value ofthe item being auctioned). This behavior is known as bid shading. Thesetwo auctions are also theoretically equivalent, but in practice, Dutchauctions often produce less revenue than sealed first-price auctions.

Unlike conventional auctions (e.g., English auctions, Dutch auctions,sealed first-price auctions, and sealed second-price auctions) whichhave a single vendor (i.e., the auctioneer) and multiple vendees, doubleauctions have multiple vendors and multiple vendees. In certainembodiments, each of these vendees and vendors submit a single bid for asingle unit. In other embodiments, each of these vendees and vendorssubmit multiple bids for a single unit or for multiple units. Also, incertain embodiments, bids arrive and expire at different times. Thus,decisions to buy or sell must be made without knowing what bids willarrive in the future.

In one embodiment, forum participants include, but are not limited to,trading platform operators and issuers, vendors, and vendees ofnon-marketable securities. As used herein, the term “trading platformoperator” means a company, agency, or organization that initiates,establishes, organizes, or otherwise puts into operation the forum andpricing mechanism. As used herein, the term “issuer” means a company,agency, or organization identified on the security or that is otherwiseprimarily responsible for the production, offering, or distribution of asecurity. As used herein, the term “vendor” means one who offers to sella security and the term “vendee” means one who offers to buy a security.In certain embodiments, a single entity can serve both as vendor andvendee. For example, in certain embodiments utilizing a doubleauction-type pricing mechanism, a person may make offers to buy someamount of a particular security at a first price and sell some amount ofthat security at a second price. The first and second prices may be thesame or different.

Preferably, the present invention is practiced without a human broker,that is, transactions are conducted directly between the vendor of asecurity and a vendee of a security without the use of a humanintermediary agent for either party. It is contemplated, however, thatin certain embodiments the present invention may be practiced withintelligent software agents acting as delegates of their human masters.

The number of vendors and vendees can be a few as one vendor and onevendee. However, the accuracy of the valuation of the present method isinfluenced, at least in part, upon the number of participants and theextent of competition between vendors, between vendees, and between avendor and vendee. Thus, the present method is preferably practiced withmultiple participant vendors and vendees which are in competition to buyand/or sell a particular security or related securities. In general, ifthe ratio of forum vendees to vendors increases with respect to the truemarket ratio of vendees to vendors, the resulting demand may upwardlyskew the estimated value of the security to a higher price. Similarly,if the ratio of forum vendees to vendors decreases with respect to thetrue market ratio of vendees to vendors, then the resulting supply maydownwardly skew the estimated value of the security to a lower price.

In certain embodiments, in consultation with and at the direction of thesecurities issuer, the trading platform operator will establish forumrules defining who can access the forum as a vendor and/or vendee andwhat types of securities can be traded. For example, a trading platformoperator may limit access to a forum only to vendors and/or vendees whoare employees of a particular company or who are affiliated with aparticular organization. In addition, the trading platform operator maylimit the type of non-marketable securities that can be traded on aforum to certain classes of employee stock options. Thus, in oneembodiment, a forum's transactions may be limited to trading employeestock options between individual vendors and vendees who are bothemployees of the same company. In certain embodiments, the tradingplatform operator is the issuer of the security.

Turning now to FIG. 1, a flow chart of an embodiment of the invention isshown wherein a forum is provided to value one or more non-marketablesecurities. According to this embodiment, the overall process forvaluing a non-marketable security begins with a security issuer offeringa non-marketable security 10 and a trading platform operator 15establishing a pricing mechanism to define the organization, informationexchange process, trading procedure of the forum for the security 10.For embodiments where the non-marketable security is an employee stockoption, the issuer is the company issuing the option. The mechanism iscommunicated to potential market participants, particularly to potentialvendees and vendors, before the opening of the market so that everyparticipant knows how the market will operate in advance 12.

Once the pricing mechanism is established, other design aspects, such ascommunication protocol, integration and transaction support, securityissues, etc., are established by the trading platform operator. Thecommunication protocol should be designed to facilitate the informationexchange process, transaction support should obey the specific marketclearance rules, such as rules for determining quantities and matchingsfor all trades, and security measures should be deployed to protect thespecific sensitive information. Other rules established by the tradingplatform operator can include rules as to whom may access the forum,time limits for trading a security, whether a real or virtual asset isexchanged for the security, what type (i.e., class) of employee maytrade, periods of “blackout” time when no trading or only limitedtrading may occur, limitations on trading within certain predefined daysof the expiration of the instrument, and the like.

Vendors 20 may gain access to the forum as per the rules established bythe trading platform operator 15. After gaining access, a vendor maypost a sell offer for a security at an initial sell price 22 inaccordance with the forum rules established by the trading platformoperator. The term “initial sell price” as used herein is the price atwhich a vendor initially offers to sell a security. The initial sellprice may or may not be the minimum price that a vendor is willing toaccept for the security or the actual price for which the security issold to a vendee. For example, if the forum comprises an Englishauction, the vendor may post an offer to sell one or more shares of anemployee stock option at a relatively low price with, optionally, areserve price. If the forum comprises a Dutch auction, the vendor mayalternatively post an offer at a relatively high offering price with,optionally, a reserve price. If the forum comprises a double auction,the vendor may post multiple offers to sell one or more shares of asecurity, such as an employee stock option, and also multiple offers tobuy the same security. In one embodiment, the initial sell price and anyother vendor generated prices such as a reserve price, are determinedexclusively by, and at the sole discretion of, the vendor, provided thatany such prices are established in accordance with the forum rules.

The posting of a sell offer can be made before, after, orcontemporaneously with the posting of a buy offer. Thus, a vendor canpost a sell offer in the forum regardless of whether any buy offerexists at the time of the posting.

According to the embodiment described in FIG. 1, the vendor's ability toview the postings of other vendors and vendees 24, 26 is optional and isdependent upon the rules established by the trading platform operator15. For example, if the market mechanism established by the vendor is asealed first-price auction, buy offers posted by vendees may not berevealed in the forum to buying or selling participants during theauction. If the market mechanism permits the vendor to accessinformation regarding buy and/or sell offers posted by otherparticipants, the vendor can access this information prior to posting asell offer 22.

Vendees 30 may gain access to the forum as per the rules established bythe trading platform operator 15. After gaining access, a vendee maypost a buy offer for a security at an initial buy price 32 in accordancewith the forum rules established by the trading platform operator. Theterm “initial buy price” as used herein is the price at which the vendeeinitially offers to buy a security. The initial buy price may or may notbe the maximum price that a vendor is willing to pay for the security orthe actual price for which the security is bought from a vendor. Inaccordance with the pricing mechanism and related rules established bythe issuer, the vendee may offer one or multiple buy offers, optionallyat different prices. Multiple buy offers by a vendee may be madeconcurrently or sequentially with respect to other offers by the vendeeor by other vendees. Additionally, if the forum comprises a doubleauction, the vendee may post not only multiple offers to buy one or moreshares of a security, such as an employee stock option, but alsomultiple offers to sell the same security. In one embodiment, theinitial buy price and any other vendee generated prices are determinedexclusively by, and at the sole discretion of, the vendee provided thatany such prices are established in accordance with the forum rules. Thetrading platform operator may allow the trading of similar securities,and/or specify the amounts of each security to be offered, sold, and/ortraded.

The posting of a buy offer can be made before, after, orcontemporaneously with the posting of a sell offer. Thus, a vendee canpost a buy offer in the forum regardless of whether any sell offerexists at the time of the posting.

After at least one sell offer and at least one buy offer has been postedto the forum, a determination is made as to whether the sell and buyoffers constitute a match as defined by the pricing mechanism and rulesestablished by the trading platform operator. For example, if thepricing mechanism is an English auction, a match is made between thesell offer and the highest buy offer, provided that conditions of theauction are met (e.g., the time period for the auction has ended, thevendor's reserve price, if any, has been met, and the like). If thepricing mechanism is an exchange, a match between a sell offer and a buyoffer is made contemporaneously with their respective postings. Othertypes of matching criteria may also be practiced with this invention,including, for example, grant dates, vesting, or exercise price. Suchcriteria are known to those skilled in the art.

FIG. 2 shows an embodiment of an electronic forum according to thepresent invention having an electronic platform including acomputer-based system for receiving, sending, storing, and processinginformation, particularly information in the form of electromagneticdata. Although a computer-based system is shown in FIG. 2, it isunderstood that, according to the present invention, an electronic forumincludes any electronic system used to convey information pertaining toan offer to sell and/or an offer to buy a non-marketable security.

The present invention may be practiced on any type of electronicplatform, including but not limited to personal computers (PCs),mainframe computers, personal digital assistants (PDAs), host/servercomputer systems, LAN systems, WAN systems, cellular telephones,telephones, and the like. Those skilled in the art will recognize thatthe choice of electronic platform will be dependent upon a number offactors including, but not limited to, capacity (e.g., the number ofusers and the frequency of transactions), security (e.g. prevention ofunauthorized access to the platform), and sophistication (e.g., thecomplexity of the software used facilitate trading). Further, it isunderstood that the various devices, modules, mechanisms and systemsdescribed herein may be realized in hardware, software, or combinationsof hardware and software. They may be implemented by any type ofcomputer system or other apparatus adapted for carrying out the methodsdescribed herein. A typical combination of hardware and software couldbe a general-purpose computer system with a computer program that, whenloaded and executed, controls the computer system such that it carriesout the methods described herein. Alternatively, a specific-usecomputer, containing specialized hardware for carrying out one or moreof the functional tasks of the invention could be utilized. The presentinvention can also be embedded in a computer program product, whichcomprises all the features enabling the implementation of the methodsand functions described herein, and which—when loaded in a compatiblecomputer system—is able to carry out these methods and functions. Theterms “computer program”, “software program”, “program”, “programproduct”, or “software”, in the present context include any expression,in any language, code or notation, of a set of instructions intended tocause a system having an information processing capability to perform aparticular function either directly or after the following: (a)conversion to another language, code or notation; and/or (b)reproduction in a different material form.

In one embodiment, the electronic platform includes a computer systemhaving a memory, a CPU, an input/output device (I/O), a bus, andnonvolatile data storage such as a nonvolatile database. Memory maycomprise any known or hereafter developed type of data storage systemand/or transmission media, including magnetic media, optical media,random access memory (RAM), read only memory (ROM), a data object, andthe like. Memory may reside at a single physical location comprising oneor more types of data storage, or be distributed across a plurality ofphysical systems. Each respective CPU may likewise comprise a singleprocessing unit, or a plurality of processing units distributed acrossone or more locations, e.g., on a client and server. Each respective I/Omay comprise any known or hereafter developed type of input/outputdevice including a network system, modem, keyboard, mouse, voicerecognition system, video monitor, printer, disc drives, etc. Additionalcomponents, such as cache memory, communication systems, systemsoftware, etc., may also be incorporated into the computer system.Peripheral components may further include a transmission system for datatransfers between, for example, a participant and the database ordirectly between two or more participants.

The computer system may include one or more central computers, i.e.,servers. A server computer typically comprises an advanced mid-rangemultiprocessor-based server, such as the Ultra II from Sun Microsystemsor the RS6000 from IBM, utilizing standard operating systems. Inaddition, the computer system includes standard operating software whichis designed to perform computations and to drive the operation of theparticular hardware and which is compatible with other systemcomponents, and I/O controllers.

The computer system can further involve the use of a programmablesoftware product that is stored in system's memory. Such a product maybe written in any applicable computer language, including but notlimited to, any version of C#, Java, Ruby, Python, or the like.

As shown in FIG. 2, the electronic platform 100 is a server-basedcomputer system having a host server 600. In one embodiment, softwareused to support the pricing mechanism is loaded onto the host 600. Thehost 600 is connected to multiple terminal systems for vendors 300,multiple terminal systems for vendees 400, and a terminal system for atrading platform operator 200. The terminal systems in FIG. 2 can be anytype of electronic apparatus capable of transmitting and receivinginformation from a forum participant to the host 600. Examples of suchapparatuses include, but are not limited to, PCs, PDAs, cellulartelephones, telephones, and the like. In one embodiment, the terminalsystem transmits and receives digital data, such as by a transmissionprotocol or an internet protocol. In another embodiment, the terminalsystem transmits and receives voice information. For embodiments inwhich voice data is transmitted from a terminal system, the server canbe equipped with hardware and/or software to convert between voice dataand digital data.

The host 600 may also be connected to an electronic banking system 500and to a management system utilized to manage the security being traded210. According to the present invention, the term “electronic bankingsystem” is meant to include a real or virtual establishment in whichfunds are kept for savings or commercial purposes, or are invested, usedin making loans, or otherwise exchanged. Examples of real electronicbanking systems include, but are not limited to, Internet-based systemsof commercial banks, Internet-based systems of savings and loans,PayPal®, electronic payroll systems, and the like. In addition to realestablishments, the present invention can utilize virtual electronicbanking systems wherein virtual assets are traded for securities.Trading in virtual assets instead of real assets is especiallybeneficial for embodiments that estimate the value of an asset inconjunction with a mathematical method of decision-making in which acompetitive situation is analyzed to determine the optimal course ofaction for an interested party (i.e. game theory). The use of virtualassets can also be advantageous to avoid potential regulatoryrestrictions, such as securities regulations and taxes. In anotherembodiment, the present invention can utilize virtual electronic bankingsystems wherein virtual assets are traded for virtual securities. Insuch embodiments, trading activity may be associated with, or used inconnection with, simulating the behavior of real markets or in providingsuch functionality within the context of a massively multiplayer onlinerole-playing game.

According to one embodiment, the host 600 is utilized to match selloffers and buy offers. When a match is confirmed, the host 600 sendsinstructions to the electronic banking system 500 to transfer funds froma vendee's account to a vendor's account. The host 600 also sendsinstructions to the management system 210 to transfer ownership of thesecurities being traded from the vendor to the vendee. The instructionssent from the host 600 to banking system 500 and/or management system210 can be performed automatically or can be performed at the discretionof the vendor and/or vendee.

1. A method for establishing a value for a non-marketable security,comprising the step of providing an electronic forum for trading thesecurity wherein said forum is adapted to receive at least one selloffer for the security and at least one buy offer for the security, tomatch a sell offer with a buy offer, and to establish a value of thesecurity from the match.
 2. The method of claim 1 wherein the forum isfurther adapted to exchange an asset for the security.
 3. The method ofclaim 2 wherein the asset is a real asset.
 4. The method of claim 2wherein the asset is a virtual asset.
 5. The method of claim 1 whereinthe forum comprises a pricing mechanism.
 6. The method of claim 5wherein the pricing mechanism is selected from the group consisting ofexchanges, open-bid ascending-price auctions, open-bid descending-priceauctions, sealed-bid first-price auctions, sealed-bid second-priceauctions, double auctions, and combinations of two of more of these. 7.The method of claim 1 wherein the forum comprises participants selectedfrom the group consisting of trading platform operators, securityissuers, vendors, vendees, and combinations of two or more of these. 8.The method of claim 7 wherein said forum comprises a plurality ofvendees.
 9. The method of claim 7 wherein said forum comprises aplurality of vendors.
 10. The method of claim 7 wherein the security istraded directly between a vendor and a vendee.
 11. The method of claim 7wherein the trading platform operator is the security issuer.
 12. Themethod of claim 12 wherein the security issuer selects the pricingmechanism.
 13. The method of claim 7 wherein the at least one sell offerand the at least one buy offer are accessible by the vendors and thevendees.
 14. The method of claim 1 wherein the security is an employeestock option.
 15. The method of claim 14 wherein the vendors and thevendees are employees or members of a single organization.
 16. Themethod of claim 1 wherein the electronic forum comprises an electronicplatform adapted to receive, send, store, and process informationrelated to the at least one sell offer and the at least one buy offer.17. The method of claim 16, wherein the electronic platform is selectedfrom the group consisting of personal computers, personal digitalassistants, mainframe computers, host/server computer systems, LANsystems, WAN systems, and cellular telephones.
 18. The method of claim17 wherein the electronic platform is adapted to communicate with anelectronic banking system.
 19. The method of claim 18 wherein theelectronic banking system is a virtual banking system.
 20. The method ofclaim 17 further comprising a database of sell offers and buy offersavailable on the forum.
 21. A method for establishing a value for anon-marketable security, comprising the step of posting a sell offer ora buy offer for the security onto an electronic forum, wherein the forumis adapted to receive at least one sell offer and at least one buyoffer, to match a sell offer to a buy offer, and to establish a value ofthe security from the match.
 22. A method for establishing a value for anon-marketable security, comprising the step of exchanging an assethaving a value equivalent to a forum-derived value for the security,wherein the forum-derived value is determined by matching a sell offerwith a buy offer in an electronic forum for trading non-marketablesecurities, and wherein the forum is adapted to receive at least onesell offer and at least one buy offer for a the security, to match asell offer with a buy offer, and to establish a value of the securityfrom the match.
 23. The method of claim 22 wherein the asset is a realasset.
 24. The method of claim 22 wherein the asset is a virtual asset.25. An electronic trading platform for valuing a non-marketable securitycomprising: a. an electronic database for maintaining at least one selloffer for the security and at least one buy offer for the security; b. asystem for receiving a vendor's sell offer; c. a system for receiving avendee's buy offer; d. a system for transferring sell offers and buyoffers from the database to vendors and vendees; e. a system formatching sell offers and buys offers; and f. a system for establishing avalue of the security based upon at least one match between sell offerand buy offer.
 26. The electronic trading platform of claim 26 furthercomprising a system for exchanging an asset for the security, whereinthe asset has a value equivalent to the established value of thesecurity.
 27. The electronic trading platform of claim 27 wherein theasset is a real asset.
 28. The electronic trading platform of claim 27wherein the asset is a virtual asset.
 29. The electronic tradingplatform of claim 26 wherein the security is an employee stock option.